Thanks to Jamie Laflen and Larry Kuhn of the Chicago Microsoft Consulting team, and Greg Archer from HP consulting for working this out.
You find WSS or SPS alerts are coming as c.htm attachments in lotus notes mail
There is an administrative, server side, per user setting in Lotus Notes that is set to "Prefers Lotus Notes Rich Text Format" for all users. This setting was causing the message body to be empty with the alert content contained inside an attached c.htm file. Changing to something along the lines of "Display in Sender's Format" will display the Alert correctly.